Liechtenstein Country Report

Liechtenstein is a politically stable micro-state that is currently led by a centre-right coalition government. The country is a hereditary constitutional monarchy and the royal family has a comparatively high impact on policy-making. Although not a member of the European Union (EU), Liechtenstein maintains close ties with the bloc. The principality’s closest diplomatic partner is Switzerland, with which it also shares a currency. Liechtenstein is a member of the European Economic Area (EEA) as well as the World Trade Organization (WTO). Liechtenstein’s favourable business environment is heavily focused on financial services and banking. Inter-state war risks and terrorism risks are minimal owing to Liechtenstein’s size, its lack of armed forces, and its friendly relations with all of its neighbouring countries and the European Union as a whole.GDP growth should remain quite moderate at around 1.5% in 2020, which is less than half of the average during 1985–2014 but firmer than the roughly 1% in 2015–17 (Liechtenstein GDP data is only available annually with a 13-month delay). Weakness in recent years has been related mainly to slow growth in private consumption, in turn linked to Swiss franc appreciation that has made shopping abroad in nearby Austria or Germany increasingly attractive.As Liechtenstein does not have a central bank, currency, or inflation measurement of its own, instead sharing these with Switzerland, the country tracks the latter’s ultra-expansive monetary policy aimed at limiting Swiss franc appreciation. The Swiss franc will remain strong at least in 2020, however, owing to high political uncertainty levels – globally as well as within Europe due to Brexit – that persistently highlight the currency’s safe-haven property. As inflation will probably stay below 1% ahead of 2022 and not exceed 2% even in the medium term, monetary policy tightening is unlikely to occur before 2024.